Lucky investors gain big as mergers and acquisitions surge in new year

Companies are buying each other at the fastest pace since before the Great Recession. Investors lucky enough to own stock in a company being bought are pocketing big money.
By BERNARD CONDON Published: February 16, 2013
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— If stock investing is like playing the lottery, your odds of winning the jackpot just got a little better.

Companies are buying each other at the fastest pace since before the Great Recession. Investors lucky enough to own stock in a company being bought are pocketing big money.

Since November, U.S. companies have announced a dozen purchases worth $3 billion or more in mining, food, technology, airlines and other industries. Stocks of the acquired companies have soared 20 percent or more above where they were trading before the deals were announced.

On Thursday, billionaire Warren Buffett's Berkshire Hathaway added to the frenzy, joining another investment firm to buy all the stock of H.J. Heinz Co. for $23 billion, or $72.50 per share. That was 20 percent higher than the ketchup maker's share price a day earlier.

Another group of shareholders scored a week earlier. In an echo of the big leveraged buyouts of the boom years, Michael Dell and an investment firm offered to take his publicly traded computer company private for $24 billion, most of that borrowed money. That translates to $13.65 per share, a 25 percent gain for stock owners, but they may get more. Two big Dell investors are protesting that the offer is too low, raising the possibility of a bidding war.

Investors are watching this deal closely for another reason: They hope it inspires investment firms to attempt other big leveraged buyouts — risky takeovers that use lots of borrowed money from banks and bond markets. The Dell deal would be the first large leveraged buyout since before the recession.

“We're finally dusting off the cobwebs,” said R.J. Hottovy, a director at Morningstar, a research firm. “It shows that banks are willing to take risks.”

Most deals have been companies buying each other in the same or similar businesses, with investment firms, and their heaps of borrowed money, playing no role. The companies often tap banks for money but usually use more of their own cash and are considered safer.

Still, CEOs have hesitated to strike deals because they were unsure they could count on the economy to help lift profits and absorb the costs of combining companies. That fear apparently is ebbing.

“It's a sign that corporate America believes that the expansion is going to accelerate,” said Peter Cardillo, chief market economist at Rockwell Global Capital.

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